Email of the day on stops and my personal portfolio:
Comment of the Day

August 12 2020

Commentary by Eoin Treacy

Email of the day on stops and my personal portfolio:

Why did you not share the fact that you had stop losses at USD 2,000 for gold and USD 27.50 for silver? I consider this just as important as sharing the information on the purchase and sale of your positions. Especially in light of the fact that your mantra has been for a long time that PMs are "potentially due for a consolidation" which leaves your subscribers pretty much in the dark of how you intend to act if and when the "potential consolidation" sets in and what in your personal view is the right way of (re-)acting. Sharing only ex-post the information that you actually had stop losses in place AFTER they are executed feels more like " adding insult to injury".


I wondered whether you can communicate in earlier fashion to your subscribers when you are trading. You don’t trade often, but with high conviction when you do. After seemingly having high conviction in a potential decade long bull market in Gold, I was a little surprised to learn you’d had a tight stop on your Gold position, this exiting at $2,000. Only the day before you were talking about Gold having lots of room to consolidate. With the decline moving through $1,900 temporarily at least, it seems you were right to sell, but I wonder how we as investors can access that critical data point in more real time. By the time we learned of it this morning, Gold had already moved through $1,900. Similarly, Silver experienced the same sort of fall, only steeper given its more volatile nature.

Eoin Treacy's view

Thank you both these emails which offer me an opportunity to clarify some points both with the provision of my personal portfolio trades and my approach to profiting from the unfolding bull market in precious metals.

My personal portfolio is provided as a public service not as a model portfolio or as a recommendation for what you should do. Inevitably some subscribers will follow my trades but these are not recommendations. In fact, we have never made recommendations because who would they be for? The reality is subscribers come from all walks of life and financial means; ranging from private individuals right up to sovereign wealth funds. Advice for one person would in no way be appropriate for another.

I mentioned repeatedly over the last couple of weeks that precious metals are prone to sharp pullbacks. I placed the stop the night before on my positions because I was worried by the warning shot decline posted on Friday. It was triggered within 12 hours which only confirmed that I was not the only person who had introduced a stop. Importantly, neither I nor David ever posted in advance where our stops are because they would only become targets for other traders. In fact, I deploy stops for exactly that reason.

I have both investment and trading positions. The trading positions are all via highly leveraged spread-bets which trade like futures contracts. My trading positions are not buy-and-forget purchases, but my trading style generally means I will hold for anything up to a few months if the trend is still running.

I continue to hold the GDX gold miners’ ETF as an investment position and expect to continue to do so for the foreseeable future. My family has mostly devoted investment funds into Mrs. Treacy’s business over the last decade because the margins are high and growth was strong until this year. Moreover, it generates Dollars while most of our income is in Pounds. I also hold substantial cash to fund leveraged trading positions.

We purchased a Iarge (for us) quantity of 14K and 18K jewellery at a $5 premium over the spot value of the alloy about 30 months ago. Mrs. Treacy has been selling it off at increasing margins since. With 80% sold, the most recent quote from the foundry is in-stock inventory has doubled. If we wanted to have new manufacturing runs, it would be triple because the cost of the metals has jumped so much in such a short period of time.

My concern has always been how could I buy gold at a discount to spot so it could be leveraged. We even looked seriously into buying a pawn shop for that exact reason. It’s not the kind of business either of us was happy pursuing in the end but we certainly considered. The easiest way to buy gold at a discount is via gold miners with low costs of production.

Miners with high costs of production offer greater leverage to the gold price because marginal changes in the price of the metal have a big impact on profitability.

Gold bounced steadied from $1900 today which is a positive development but I believe it is too much to hope for that the reaction be limited to single big day on the downside. I still think $1800 is a more likely area of potential support.

Silver pulled back much more violently and has already unwound half the gain since the break above $20. We are probably in for some additional volatility but I do no think we are going to see the price trade below $20 on a sustained basis again.

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